Court of Appeals of Iowa.

TRAVELERS INDEMNITY COMPANY, Plaintiff–Appellant,

v.

D & L RESOURCES, L.L.C., Heartland Lease, Inc., D.J. Franzen Enterprises, Ltd., and ICS Logistics Corp., Defendants–Appellees.

No. 15–0083.

|

Sept. 28, 2016.

Appeal from the Iowa District Court for Polk County, Dennis J. Stovall, Judge.

The plaintiff appeals from the district court’s denial of its request to impose a constructive trust on assets of the defendants. AFFIRMED.

Attorneys and Law Firms

CeCelia C. Ibson of Ibson Law Firm, Des Moines, for appellant.

Jonathan N. Garner of Hartung & Schroeder, L.L.P., Des Moines, for appellee ICS Logistics Corp.

Stanley J. Thompson of Davis, Brown, Koehn, Shors & Roberts, P.C., West Des Moines, for appellees D & L Resources, L.L.C., Heartland Lease, Inc. and D.J. Franzen Enterprises, Ltd.

Heard by POTTERFIELD, P.J., and DOYLE and TABOR, JJ.

Opinion

POTTERFIELD, Presiding Judge.

 

*1 Travelers Indemnity Company, judgment creditor of Franzen Inc., appeals from the district court’s denial of its request to impose a constructive trust on the assets of the defendants, D & L Resources, L.L.C.; Heartland Lease, Inc.; DJ Franzen Enterprises, Ltd.; and ICS Logistics Corp. Travelers challenges the district court’s ruling that it failed to establish its theory of constructive fraud involving D.J. Franzen, Inc., the judgment debtor, and the defendants named in this suit.1

 

 

1. Background Facts and Proceedings.

In 2003, Travelers issued a workers’ compensation policy to D.J. Franzen, Inc. At the end of the policy period, Franzen Inc. disputed the scope of coverage for its drivers and the resulting amount of premium owed to Travelers. The issue was decided by our supreme court in October 2010. In Travelers Indemnity Co. v. D.J. Franzen, Inc., 792 N.W.2d 242, 251 (Iowa 2010), the court ruled that Franzen Inc. owed Travelers $550,661 and remanded with instructions to enter judgment in favor of Travelers. The present case stems from Travelers’ attempt to execute that judgment.

 

The facts of this case are generally not in dispute. As Travelers stated in its brief, “The dispute between the parties centers on what the facts mean. In other words, not so much the ‘who’, ‘what’, or ‘when’ of each transaction, but the ‘how’ and why.’ “

 

Denny Franzen started a trucking company as a sole proprietor in the 1980s. Denny2 retained Denman & Co. as his accountant. Based on Denman’s recommendation, the trucking operations were incorporated into D.J. Franzen, Inc. in 1987.

 

Denman later recommended that due to the liability inherent in the trucking industry, it would be best for Franzen Inc. to set up a parent corporation to whom annual earnings, if any, could be declared in the form of a dividend. Consequently, D.J. Franzen Enterprises, Ltd. was formed for this purpose in 1991. Franzen Enterprises was the sole shareholder of Franzen Inc. and Denny and Linda Franzen were the sole shareholders of Franzen Enterprises.

 

Additionally, Franzen Enterprises owned 100% of several other related Franzen trucking entities, namely, Heartland Lease, Inc. and Southeast Transportation Management Inc.

 

Throughout its operations, Franzen Inc. historically had negative net equity and, on a balance sheet basis, was insolvent. As Franzen Inc. needed operating revenue, Franzen Enterprises would make intercompany loans to Franzen Inc. Those intercompany loans were properly documented on federal tax returns filed during the relevant time periods. In fact, by January 1, 2003, which was before Franzen Inc. had any contact with Travelers, Franzen Inc. owed intercompany debt to Franzen Enterprises in excess of $3.3 million. By 2011, the intercompany loans were in excess of $3.7 million.

 

In addition to making intercompany loans, in 1994 Franzen Inc. granted a blanket security interest in its assets to West Bank—its lender. Moreover, as tractors and trailers were acquired, separate finance companies would loan funds to Franzen Inc. to acquire those assets and in return, those companies would become secured creditors of Franzen Inc. for the particular equipment.

 

*2 According to Denny’s testimony, he formed an intent to retire from the day-to-day management of the trucking company sometime before the Supreme Court filed its ruling in favor of Traveler’s in October 2010. Consequently, he began discussing the sale of his business to one of his long-term employees, Chris Van Schepen. Chris had started working in the trucking industry in approximately 1986, and he had been working for Franzen Inc. as the maintenance director since 1997.

 

Starting in 2010, Franzen Inc. began transitioning its trucking operations to ICS Logistics, Corp., a company formed by Chris to acquire the assets and operations of Franzen Inc. Chris testified the gradual acquisition allowed both parties to fully assess the viability of the anticipated transaction between them.

 

On October 18, 2011, the district court entered judgment on remand from the Supreme Court in the amount of $550,661 against Franzen Inc. and in favor of Travelers. In April 2012, Travelers sought execution on the judgment at Wells Fargo—a bank Franzen Inc. had never used. No other execution was ever attempted by Travelers. Travelers did not initiate a judgment debtor examination on Franzen Inc. until September 19, 2012.

 

Meanwhile, in August 2011, Denny determined Franzen Inc. had assets worth $2,896,569. Denny and Chris discussed that figure as a purchase price for those assets. Chris sought an individual appraisal from a trucking expert. Subsequently, Denny and Chris agreed to $2.8 million as the purchase price, a value confirmed by the appraiser. Denny and Chris sought the assistance of both legal and tax professionals to structure the transaction. Denman provided tax guidance and attorney Dan Waters was retained to draft the legal documentation.

 

Recognizing that Denny was a sole proprietor who developed the initial customers and had the ability to retain those customers, multiple certified public accounts testified at trial that Denny could have owned 100% of the customer list. Regardless of this fact, due to tax considerations and at the advice of the tax professionals involved, one-third of the customer list was allocated to Franzen Enterprises and the other two-thirds were allocated to Denny.

 

Effective June 30, 2012, Franzen Inc. sold its assets, which consisted of tractors, trailers and other equipment, to Franzen Enterprises. Franzen Enterprises then sold the equipment to Logistics Corp. for $372,730 and one-third of the customer list for an additional $809,246. In return, Logistics Corp. issued promissory notes in those amounts to Franzen Enterprises. Franzen Enterprises then assigned the notes to Denny and Linda Franzen, the sole shareholders. Additionally, Denny sold his two-thirds of the customer list to Logistics Corp. for an additional $1,618,492—Logistics Corp. issued him a promissory note in that amount.

 

The assets of Franzen Inc. were not sufficient to satisfy its debt on intercompany loans, so Franzen Inc. provided a secured note in the amount of $1,022,551 to Franzen Enterprises and a secured note in the amount of $1,932,510 to Heartland. Thereafter, Franzen Inc., Franzen Enterprises, Southeast Transportation, and Heartland were all dissolved.

 

*3 The bill of sale from Franzen Inc. to Franzen Enterprises states, “Seller represents and warrants to Buyer that Seller has good and marketable title to said assets, free of any and all liens, claims, restrictions, and encumbrances. Buyer hereby consents to becoming the owner of said assets, and Buyer hereby assumes the debt associated with said assets….” The other bills of sale include the same language.

 

All of the witnesses testifying on behalf of the defendants conceded that Travelers’ judgment would or should have been considered a “claim” against the assets of Franzen Inc. Denny, Chris, and Attorney Waters all testified that they were aware of the Iowa Supreme Court’s decision regarding the judgment around the time it was issued—October 2010. Denny admitted that no provision had been made for the satisfaction of the judgment; in fact, he testified he never had any intention of satisfying the judgment.

 

Following the advice of tax and legal professionals, Logistics Corp. was converted into a newly formed entity named ICS Logistics, LLC. Logistics LLC was organized on December 31, 2012. Counsel for the entity initially submitted the conversion documents for filing with the Iowa Secretary of State on May 3, 2013, via fax. The filings were returned by mail on May 6, 2013, due to lines on the page from the fax transmission. The conversion filings were resubmitted on May 17, 2013—three days after Travelers filed its petition in this case.

 

Chris testified that Logistics Corp and then its successor Logistics LLC have made timely payments of approximately $40,000 per month on the three promissory notes—for the equipment and phone list—since February 2013.

 

Denny testified that he and his wife transferred the promissory note they received from Logistics Corp. in exchange for their two-thirds of the customer list and their right to receive monthly payments thereon to Iowa Cold Storage.3 In exchange, Denny and Linda received additional shares of stock in Iowa Cold Storage. Logistics Corp. and then Logistics LLC has made periodic payments on the note to Iowa Cold Storage.

 

Despite Denny’s structured sale of the business to Chris, Denny continued to have an active role in the operation of the companies. According to the report prepared by the certified public accountant hired by the defendants for trial, neither Linda nor Denny Franzen had an ownership interest in ICS Logistics; “[t]hus it [was] an arms-length transaction.”

 

Travelers brought suit to enforce its judgment against Franzen Inc. on a theory of constructive fraud. The district court ruled against Travelers’ request for a constructive trust on the assets of the defendants. Travelers appeals.

 

 

1. Standard of Review.

The case was tried to the district court in equity, so our review is de novo. Iowa R.App. P. 6.907; see also Berger v. Cas’ Feed Store, Inc., 577 N.W.2d 631, 632 (Iowa 1998) (stating the court’s review of the trial court’s decision to impose a constructive trust would be de novo).

 

 

III. Discussion.

*4 Travelers maintains Franzen Inc. fraudulently conveyed its property and assets to the other named defendants in an attempt to escape the judgment entered against Franzen Inc. Accordingly, Travelers brought this suit pursuant to Iowa Code section 630.16 (2013) in an attempt to execute the judgment entered against Franzen Inc. in October 2011.4

 

Iowa Code section 630.16 provides:

At any time after the rendition of a judgment, an action by equitable proceedings may be brought to subject any property, money, rights, credits, or interest therein belonging to the defendant to the satisfaction of such judgment. In such action, persons indebted to the judgment debtor, or holding any property or money in which such debtor has any interest, or the evidences of securities for the same, may be made defendants.

This section “furnishes means auxiliary to execution by which a creditor may uncover property in which the debtor still holds an interest.” Powell v. Grewing, 562 N.W.2d 761, 763 (Iowa 1997). It may be used as a means to uncover true ownership where a debtor engaged in fraudulent conveyances. See id. (citing Boyle v. Maroney, 35 N.W. 145, 147 (Iowa 1887)). In order to prove Franzen Inc. still holds an interest in the property, Travelers has the burden to establish that the transfer to the defendants was fraudulent. See First Sec. Bank & Trust Co. v. King, No. 05–2039, 2007 WL 248021, at *3 (Iowa Ct.App. Jan. 31, 2007).

 

Here, Travelers only pled the theory of constructive fraud. “We presume a transfer of property without consideration is fraudulent. In order to rebut this presumption of constructive fraud, the transferee must prove the transferor remained solvent after the transfer.” Benson v. Richardson, 537 N.W.2d 748, 756 (Iowa 1995) (citation omitted). Travelers has the burden to establish the fraud by “clear and convincing evidence” and must “demonstrate the fraud has caused [it] prejudice.” See id. It does not need to prove “actual dishonesty or intent” to establish a claim of constructive fraud. See id. at 757.

 

The district court ruled Travelers had not met its burden in establishing Franzen Inc. had engaged in a fraudulent transaction with the named defendants because Franzen Inc. did not transfer its property without consideration. Rather, Franzen Inc. transferred its assets to Franzen Enterprises, to which it owed more than $3 million. Those assets of Franzen Inc. were not sufficient to satisfy its debt on the intercompany loans. There is no dispute that Franzen Enterprises was a creditor of Franzen Inc. well before Travelers became a creditor and even before Travelers wrote the insurance policy underlying its claim against Franzen Inc. “A debtor may prefer one creditor over another by way of sale, mortgage, or the giving of security to others even if the debtor’s intentions toward the nonpreferred creditor are spiteful and the action will delay or prevent the nonpreferred creditor from obtaining judgment.” Id.

 

*5 Additionally, as the district court noted, although Franzen Inc. was insolvent and ultimately dissolved after it transferred its assets to Franzen Enterprises, Franzen Inc. was actually insolvent both in 2003 when Travelers wrote the policy and in 2011 when the judgment against it was entered. See id. (“Under Iowa law, an individual debtor is insolvent ‘if the sum of the debtor’s debts is greater than all of the debtor’s assets at fair valuation.’ “ (citation omitted)).

 

After the transfer between Franzen Inc. and Franzen Enterprises, Franzen Enterprises sold the equipment to Logistics Corp. for $372,730 and one-third of the customer list for an additional $809,246. In return, Logistics Corp. issued promissory notes in those amounts to Franzen Enterprises. Additionally, Denny sold his two-thirds of the customer list to Logistics Corp. for an additional $1,618,492—Logistics Corp. issued him a promissory note in that amount. Chris testified that Logistics Corp and then its successor Logistics LLC5 have made timely payments of approximately $40,000 per month on the three promissory notes since February 2013.

 

Travelers implies that the consideration for this transaction is a façade. First, we note the promissory notes themselves constitute consideration. See Bjornsen Constr. Co. v. J.A. Whitmer & Sons, 119 N.W.2d 801, 804 (Iowa 1963) (“The note itself imports a consideration.”). Second, although Travelers implies the payments on the notes are not being made as Chris testified, Travelers has the burden to establish a fraudulent conveyance took place; insinuations and speculation regarding the consideration involved in the transaction are not enough to do that.6 Finally, the $2.8 million purchase price was confirmed as fair value by a trucking expert, and Travelers has not disputed that the amount was adequate. See Benson, 537 N.W.2d at 754 (considering inadequacy of consideration as an “indicia of fraud”).

 

Travelers has not established that Franzen Enterprises’ conveyance to Logistics Corp. was without valuable consideration; it has not met its burden to establish constructive fraud between the two entities. As such, we affirm the district court’s denial of Travelers’ request to impose a constructive trust on the assets of the named defendants.

 

 

1. Conclusion.

Because Travelers has not met its burden to establish its theory of constructive fraud involving D.J. Franzen, Inc and the named defendants, we affirm.

 

AFFIRMED.

 

All Citations

Slip Copy, 2016 WL 5480780 (Table)

 

 

Footnotes

1

As an alternative argument, Travelers maintains the evidence presented at trial supported the imposition of an equitable lien in the amount of the judgment owed to Travelers. Travelers concedes the district court never ruled on this issue but maintains it is preserved for our review. Although there are situations where the district court’s decision “necessarily” considered and preserved an issue, see Lamasters v. State, 821 N.W.2d 856, 864 (Iowa 2012), here the district court explicitly stated that Travelers’ motion to amend its petition to include the issue of an equitable lien was untimely. As such, we agree with the defendants that it is not preserved for our review. See Bank of America, N.A. v. Schulte, 843 N.W.2d 876, 883 (Iowa 2014) (“It is a fundamental doctrine of appellate review that issues must ordinarily be both raised and decided by the district court before we will decide them on appeal. To preserve error on even a properly raised issue on which the district court failed to rule, ‘the party who raised the issue must file a motion requesting a ruling in order to preserve error on appeal.’ “ (citations omitted)).

2

Because of the number of entities with the name Franzen in the title, we refer to Denny Franzen as Denny throughout.

3

Denny was a minority shareholder in Iowa Cold Storage, a business with a cooperative history with Franzen Inc.

4

Travelers sought to amend its pleadings prior to trial, but the district court did not allow it do so. Travelers did not appeal the district court’s denial of its motion to amend. Moreover, the district court only ruled on Travelers’ claims regarding section 630 .16 and constructive fraud, and Travelers did not file any after-trial motions to correct any alleged errors regarding the scope of the trial court’s rulings. As such, we will not consider any of Travelers’ arguments that are outside of that scope, as they are outside of our purview.

Specifically, other arguments Travelers makes include: whether it could establish the defendants committed actual fraud, whether the purchasers were good faith purchasers for value, whether it was able to establish the defendants were involved in collusion or a conspiracy, and whether an equitable lien was an appropriate remedy.

5

Although Travelers implies this conversion was done in order to avoid or complicate this lawsuit, as the district court noted, Logistics Corp. originally filed the conversion documents before Travelers filed its petition.

6

In its brief, Travelers states:

Franzen, Inc. transferred all its assets to ICS Corp. ICS Corp. is a product of the ingenuity of Denny Franzen. While the company may be in Chris Van Schepen’s name, it is nothing more than a reincarnation of D.J. Franzen, Inc. Virtually all the drivers are former Franzen drivers. All the clerical, office, managerial and other employees came directly from Franzen. The trucks came from Franzen, Inc.’s affiliate, Heartland Lease. Indeed, Chris Van Schepen testified at trial that his trucks still pull trailers bearing the “D.J. Franzen” logo emblazoned on the sides.

Chris Van Schepen, who never made more than $68,000 a year during his many years with the Franzen companies, paid nearly $3 million for this widely-recognized concern. No money down, and monthly payments in the tens of thousands of dollars, which he pays when due and without difficulty.

United States District Court,

1. Oregon.

STEVEN D. MARSHALL, Plaintiff,

v.

GORDON TRUCKING, INC., Defendant.

3:12-cv-01550-BR

|

Filed 10/17/2016

Attorneys and Law Firms

ERIC J. FJELSTAD, Smith & Fjelstad, 722 N. Main Avenue, Gresham, OR 97030, (503) 669-2242, Attorneys for Plaintiff

CHRISTINE A. SLATTERY, SCOTT OBERG OBORNE, Jackson Lewis LLP, 1001 S.W. 5th Ave., Suite 1205, Portland, OR 97204, (503) 229-0404, Attorneys for Defendant

 

 

OPINION AND ORDER

ANNA J. BROWN United States District Judge

*1 This matter comes before the Court on remand from the Ninth Circuit dated June 1, 2016, regarding this Court’s Opinion and Order (#35) issued October 30, 2013, granting Defendant Gordon Trucking Inc.’s Motion (#28) for Summary Judgment. The Ninth Circuit found this Court “understandably treated” Defendant’s Motion as an “unenumerated 12(b) motion” under the then-existing case law and evaluated Defendant’s Motion under that standard.

 

On remand the Ninth Circuit instructed the Court to follow Albino v. Baca, 747 F.3d 1162 (9th Cir. 2014), which was announced six months after this Court’s decision on Defendant’s Motion. In Albino the Ninth Circuit held a failure to exhaust administrative remedies “is an affirmative defense that should normally be raised through a summary judgment motion” and evaluated under the applicable standard for such motions.

 

In addition, the Ninth Circuit held this Court erred when it found it did not have subject-matter jurisdiction because of Defendant’s failure to exhaust his remedies under the United States Department of Transportation (DOT) Federal Motor Carrier Safety Administration regulations. The Ninth Circuit also directed this Court to consider whether to exercise its discretion to excuse exhaustion or to invoke the doctrine of primary jurisdiction.

 

Defendant moves for summary judgment on the grounds that (1) Plaintiff Steven D. Marshall failed to exhaust the DOT administrative remedies and (2) Plaintiff cannot prove he is a “qualified individual” under the Americans with Disability Act (ADA), 42 U.S.C. § 12111.

 

For the reasons that follow, the Court GRANTS Defendant’s Motion.

 

 

FACTUAL BACKGROUND

The following facts, as set forth in the Court’s Opinion and Order (#35) issued October 30, 2013, are undisputed unless otherwise noted:

 

Defendant is an interstate long-haul trucking company based in Pacific, Washington. As an interstate carrier Defendant is required to comply with federal regulations promulgated by the DOT.

 

In December 2010 Defendant purchased Plaintiff’s former employer, Cascade Express. Plaintiff applied for a position with Defendant and was given a conditional job offer. To complete the application process Plaintiff was required to have a DOT medical examination in order to be certified as medically qualified to drive for Defendant. Dr. Christopher Swan conducted the medical examination, during which Plaintiff disclosed he suffered from a bipolar disorder and was taking the medication lithium to treat his illness. In spite of Plaintiff’s disclosure, Dr. Swan issued a medical-examiner’s certificate indicating Plaintiff was physically qualified to drive a commercial vehicle. Defendant reviewed the results of Dr. Swan’s medical examination and the certificate of physical qualification. Defendant also consulted with its retained physician, Dr. Stephen Sorsby, to determine whether Plaintiff was medically qualified to drive under DOT regulations while taking lithium. At that time Dr. Sorsby was the Regional Medical Director at U.S. HealthWorks and a specialist regarding DOT-regulated drivers.

 

*2 Dr. Sorsby disagreed with Dr. Swan’s conclusion that Plaintiff was qualified to drive commercial vehicles. Although lithium is not a substance banned under DOT regulations, Dr. Sorsby concluded Plaintiff was not medically qualified to be a commercial driver under DOT regulations because Dr. Sorsby believes lithium has a propensity to cause night blindness. As a result, Defendant excludes all individuals who take lithium from driving a commercial motor vehicle for Defendant. Defendant, therefore, told Plaintiff that he was disqualified under DOT regulations from driving for Defendant while taking lithium. Defendant suggested Plaintiff speak with his personal physician about an alternative medication. Shortly thereafter Plaintiff informed Defendant that his doctor refused to take him off of lithium.

 

Defendant then terminated1 Plaintiff’s employment in light of Dr. Sorsby’s opinion that Plaintiff was not medically qualified to drive commercial vehicles under DOT regulations because Plaintiff was taking lithium.

 

 

PROCEDURAL BACKGROUND

In November 2011 Plaintiff filed a claim with the Oregon Bureau of Labor and Industries (BOLI). The filing of his claim was, in effect, a joint filing with the federal Equal Employment Opportunity Commission (EEOC) pursuant to a work-sharing agreement between BOLI and EEOC. In June 2012 the EEOC sent Plaintiff a Right to Sue notice.

 

DOT regulations provide appeal procedures when there is a “disagreement between the physician for the driver and the physician for the motor carrier concerning the driver’s qualifications.” 49 C.F.R. § 391.47(b)(2). Nevertheless, even though there was a disagreement between Plaintiff’s physician and Defendant’s physician as to Plaintiff’s qualifications, Plaintiff did not seek a determination from DOT as to his medical qualifications to drive commercial vehicles pursuant to 49 C.F.R. § 391.47.

 

Plaintiff filed this action against Defendant on August 28, 2012, asserting a claim for disability discrimination under the Americans with Disability Act (ADA), 42 U.S.C. § 12111. Plaintiff seeks relief under three separate counts: disparate treatment (Count One), failure to engage in interactive process (Count Two), and failure to accommodate (Count Three).

 

Defendant filed its original Motion (#28) for Summary Judgment on June 24, 2013. On October 30, 2013, the Court granted Defendant’s Motion and entered a Judgment on October 31, 2013, dismissing Plaintiff’s action for lack of jurisdiction. On November 19, 2013, Plaintiff filed a Notice of Appeal to the Ninth Circuit.

 

As noted, the Ninth Circuit issued its Mandate on June 1, 2016, reversing and remanding this case. On July 29, 2016, the Court again took Defendant’s Motion for Summary Judgment under advisement pursuant to the standards specified in that Mandate.

 

 

STANDARDS

Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Washington Mut. Ins. v. United States, 636 F.3d 1207, 1216 (9th Cir. 2011). See also Fed. R. Civ. P. 56(a). The moving party must show the absence of a dispute as to a material fact. Rivera v. Philip Morris, Inc., 395 F.3d 1142, 1146 (9th Cir. 2005). In response to a properly supported motion for summary judgment, the nonmoving party must go beyond the pleadings and show there is a genuine dispute as to a material fact for trial. Id. “This burden is not a light one …. The non-moving party must do more than show there is some ‘metaphysical doubt’ as to the material facts at issue.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010) (citation omitted).

 

*3 A dispute as to a material fact is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The court must draw all reasonable inferences in favor of the nonmoving party. Sluimer v. Verity, Inc., 606 F.3d 584, 587 (9th Cir. 2010). “Summary judgment cannot be granted where contrary inferences may be drawn from the evidence as to material issues.” Easter v. Am. W. Fin., 381 F.3d 948, 957 (9th Cir. 2004)(citation omitted). A “mere disagreement or bald assertion” that a genuine dispute as to a material fact exists “will not preclude the grant of summary judgment.” Deering v. Lassen Cmty. Coll. Dist., No. 2:07-CV-1521-JAM-DAD, 2011 WL 202797, at *2 (E.D. Cal., Jan. 20, 2011) (citing Harper v. Wallingford, 877 F.2d 728, 731 (9th Cir. 1989)). When the nonmoving party’s claims are factually implausible, that party must “come forward with more persuasive evidence than otherwise would be necessary.” LVRC Holdings LLC v. Brekka, 581 F.3d 1127, 1137 (9th Cir. 2009)(citation omitted).

 

The substantive law governing a claim or a defense determines whether a fact is material. Miller v. Glenn Miller Prod., Inc., 454 F.3d 975, 987 (9th Cir. 2006). If the resolution of a factual dispute would not affect the outcome of the claim, the court may grant summary judgment. Id.

 

 

DISCUSSION

As noted, the failure to exhaust administrative remedies is an affirmative defense that must be pled and proved by a defendant. Albino, 747 F.3d at 1168. A defendant has the initial burden to prove that there is an available administrative remedy and that the plaintiff did not exhaust that available remedy. After the defendant has carried that burden, the plaintiff must produce evidence showing there is something in his particular case that made the existing and generally available administrative remedy effectively unavailable to him. Albino, 747 F.3d at 1172.

 

If the court determines the plaintiff has failed to exhaust the administrative remedies available to him, the court may excuse the plaintiff’s failure or, in the exercise of its discretion, invoke primary jurisdiction and direct the parties to proceed before the agency.

 

 

1. Defendant has shown an administrative remedy is available to Plaintiff.

Congress has given the Secretary of Transportation the power to prescribe the qualifications for drivers of commercial motor carriers. 49 U.S.C. § 31102(b)(1)(C). The DOT sets minimum standards for commercial drivers with respect to hiring, qualifications, and safety. See 49 C.F.R. § 391.1, et seq. As noted, because Defendant is an interstate trucking company, it is required to comply with DOT regulations. Under these regulations “a motor carrier shall not … permit a person to drive a commercial motor vehicle unless that person is qualified to drive” under the physical-qualification standards. 49 C.F.R. § 391.11(a). When a dispute arises regarding a driver’s medical qualification based on a conflict of medical opinion, the DOT has established an administrative process to address the dispute under 49 C.F.R. § 391.47.

 

The Ninth Circuit has not addressed the issue of a plaintiff’s failure to exhaust DOT administrative remedies in an ADA case. In Harris v. P.A.M. Transp., Inc., the leading case on this issue, the Eighth Circuit explained the applicable DOT regulations regarding the driver physical-qualification requirements and the administrative procedure for settling disputes as follows:

Congress has delegated to the Secretary of Transportation the authority to prescribe driver qualifications. See 49 U.S.C. § 31102(b)(1). Pursuant to this authority, the DOT promulgated the Federal Motor Carrier Safety Regulations, under which a person “shall not drive a commercial motor vehicle” without a “medical examiner’s certificate that [the person] is physically qualified.” 49 C.F.R. § 391.41(a). Specifically, “the medical examiner is required to certify that the driver does not have any physical, mental, or organic condition that might affect the driver’s ability to operate a commercial motor vehicle safely.” 49 C.F.R. § 391.43(f). And, most importantly in this case, DOT regulations provide appeal procedures for instances of “disagreement between the physician for the driver and the physician for the motor carrier concerning the driver’s qualifications.” 49 C.F.R. § 391.47(b)(2).

*4 339 F.3d 635, 638 (8th Cir. 2003).

 

The Court notes a plaintiff who contends his motor-carrier employer violated his rights under the ADA is not specifically required under any statute to exhaust the administrative remedies provided under 49 C.F.R. § 391.47 nor does 49 C.F.R. § 391.47 refer specifically to ADA or discrimination claims. Courts following Harris have, nevertheless, found it prudent to impose an exhaustion requirement because of the DOT’s greater competence in determining when its safety-regulation requirements are being met. See, e.g., EEOC v. P.A.M. Transp., Inc., No. 09-13851, 2011 WL 3919300 (E.D. Mich. May 10, 2011); Cliburn v. CUSA KBC, LLC, No. SA-07-CV-0620, 2007 WL 4199605 (W.D. Tex. Nov. 25, 2007); EEOC v. Celadon Trucking Serv., Inc., No. 1:12-cv-00275, 2015 WL 3961180 (S.D. Ind. June 30, 2015). The Harris court noted:

Federal courts addressing claims similar to [the plaintiff’s] have held that “[e]xhaustion of DOT procedures should be required” in these circumstances because driver fitness “falls squarely within the regulatory scheme (and substantive expertise) of DOT.” Campbell v. Federal Express Corp., 918 F. Supp. 912, 918 (D. Md. 1996). See also Prado v. Continental Air Transp. Co., 982 F. Supp. 1304, 1308 (N.D. Ill. 1997)(“The court will not abrogate clear congressional intent which vests driver fitness issues in the Secretary of Transportation.”). We agree.

Id. This Court agrees with the analysis in Harris and the cases that follow it. Here, as noted, to satisfy DOT requirements, Plaintiff’s physician performed a medical examination of Plaintiff and issued a medical-examiner’s certificate indicating Plaintiff was medically qualified to drive a commercial vehicle. Defendant’s medical examiner disagreed and determined Plaintiff was not medically qualified to drive as a result of his use of lithium and its propensity to cause night blindness. The Court concludes this resulting “disagreement” concerning Plaintiff’s “ability to operate a commercial motor vehicle safely” should have been resolved pursuant to the administrative process set out in 49 C.F.R. § 391.47.

 

On this record, therefore, the Court, adopting the reasoning of Harris, concludes there is not a genuine dispute of material fact that an administrative process exists to resolve the dispute as to Plaintiff’s medical qualifications to drive a commercial vehicle.

 

 

391. Defendant has shown Plaintiff did not exhaust the available administrative remedies provided under 49 C.F.R. § 391.47.

With respect to Defendant’s duty to establish that Plaintiff failed to exhaust the available administrative remedy, the parties’ Joint Statement of Agreed Facts (#26) indicates “Defendant never received information that Plaintiff sought a determination from the DOT of his medical qualifications pursuant to 49 C.F.R. § 391.47(a), and there is no evidence in the record he has ever done so.”

 

The Court, therefore, concludes it is undisputed that Plaintiff did not exhaust the administrative remedies available to him pursuant to 49 C.F.R. § 391.47.

 

 

III. Plaintiff has not shown his failure to exhaust the available administrative remedies was because those remedies were, in effect, “unavailable” to him.

*5 As noted, after a defendant has carried its burden to establish the availability of and failure to exhaust administrative remedies, a plaintiff has the burden to produce evidence that shows there is something in his particular case that made the existing administrative remedies effectively unavailable to him. See Albino, 747 F.3d at 1172. Here Plaintiff contends the Court should excuse his failure to exhaust the available administrative process because such process would have been futile and, in any event, he was a qualified person with a disability who Defendant discriminated against in violation of the ADA.

 

 

391. Plaintiff has not shown the administrative procedures under 49 C.F.R. § 391.47 were unavailable to him as a practical matter.

Plaintiff contends when Defendant terminated him, Defendant merely invoked its own policy that prohibited lithium use by its drivers rather than any particular DOT regulation that prohibits the use of lithium by commercial drivers. Plaintiff argues, therefore, the dispute does not turn on the disagreement of medical examiners as required by the administrative process, but instead on the application of Defendant’s rules rather than DOT regulations. Defendant, however, asserts the decision to terminate Plaintiff was based on the opinion of Dr. Sorsby, Defendant’s medical examiner, that Plaintiff was not medically qualified to drive under DOT regulations as a result of Plaintiff’s use of lithium, a medication that Dr. Sorsby believed had the side- effect of causing night blindness.

 

DOT regulations provide a person is medically disqualified if he has a “mental, nervous, organic, or functional disease or psychiatric disorder likely to interfere with his/her ability to drive a commercial motor vehicle safely.” 49 C.F.R. § 391.41(b)(9). Here it is undisputed that Plaintiff takes lithium for the treatment of his bipolar disorder. Plaintiff’s physician, Dr. Swan, although aware of Plaintiff’s use of lithium to treat his illness, issued a medical-examiner’s certificate indicating Plaintiff was medically qualified to drive a commercial vehicle pursuant to DOT regulations. Dr. Sorsby, Defendant’s retained physician, provided his opinion that Plaintiff is not medically qualified to drive pursuant to DOT regulations because night-blindness, which could interfere with Plaintiff’s ability to drive safely, is a possible side-effect of lithium.

 

In the Joint Statement of Agreed Facts (#26) the parties agreed, in effect, that the issue at the heart of this matter is precisely the type of disagreement that the DOT administrative process is designed to address: “Dr. Sorsby disagreed with Dr. Swan’s conclusion that Plaintiff was qualified to drive commercial vehicles…. Despite Plaintiff’s disclosure that he was taking lithium, Dr. Swan issued Plaintiff a medical examiner’s certificate of physical qualifications…. [I]n [Dr. Sorsby’s] opinion, Plaintiff was not medically qualified to drive pursuant to DOT regulations because of the lithium he was taking.” Thus, as noted, the opinions of the two physicians resulted in a conflict in the interpretation and the application of the DOT regulations that the administrative process was intended to address.

 

Nevertheless, Plaintiff contends the DOT process was futile as it was not well-known nor well-developed and, even more significant, the administrative process did not provide the remedy of re-hiring him if the outcome was in his favor. The issue, however, is whether a process is available “as a practical matter” or “capable of use” rather than whether the process is “well-known or well-developed.” Id. at 1171. Plaintiff does not submit any evidence to show the process was unavailable to him, that he was incapable of utilizing it, or that a remedy was not available under the administrative process. In Brown v. Valoff the Ninth Circuit held the obligation to exhaust “available” remedies (in the context of a Prison Litigation Reform Act case) persists as long as some remedy remains “available.” 422 F.3d 926 (9th Cir. 2015). Here the available remedy under the administrative process certainly would have determined whether Plaintiff was or was not medically qualified to be a commercial driver pursuant to 49 C.F.R. § 391.47.

 

 

1. Plaintiff has not yet shown he was a “qualified” person with a disability under the ADA.

*6 Plaintiff next contends he is an “otherwise qualified” person with a disability under the ADA. Plaintiff argues he was a qualified commercial driver under DOT medical standards, which do not ban the use of lithium; that his termination by Defendant was based on Plaintiff’s use of lithium to treat his bipolar medical condition; and, therefore, Plaintiff is a qualified person with a disability. Defendant, however, argues Plaintiff cannot establish he was a qualified individual with a disability under the ADA because it has not been established whether Plaintiff was qualified under DOT regulations “to operate a commercial motor vehicle safely.”

 

Title I of the ADA prohibits employment discrimination “on the basis of disability.” 42 U.S.C. § 12112(a). Congress, however, did not intend the ADA to bypass federal safety regulations. As the Supreme Court explained:

When Congress enacted the ADA, it recognized that federal safety rules would limit application of the ADA as a matter of law. The Senate Labor and Human Resources Committee Report on the ADA stated that “a person with a disability applying for or currently holding a job subject to [DOT standards for drivers] must be able to satisfy these physical qualification standards in order to be considered a qualified individual with a disability under Title I of this legislation.” The two primary House committees shared this understanding.

Albertson’s, Inc. v. Kirkingburg, 527 U.S. 555 (1999)(alteration in original) (citations omitted). Thus, courts have held an employment action based on an employee’s or prospective employee’s inability to satisfy DOT medical standards does not violate disability discrimination laws (Williams v. J.B. Hunt Transp., Inc., 826 F.3d 806, 811 (5th Circ. 2016)) because otherwise motor-carrier employers would face the dilemma of risking ADA liability or violating the DOT’s command that “a motor carrier shall not … permit a person to drive a commercial motor vehicle unless that person is qualified” under the agency’s safety regulations (49 C.F.R. § 391.11).

 

Although the Ninth Circuit has not explicitly addressed this issue, the Fifth Circuit Court of Appeals, relying on Harris, did so in Williams v. J.B. Hunt Transp., Inc., 826 F.3d 806 (5th Cir. 2016). Following a line of cases from other circuits, the Fifth Circuit concluded the plaintiff “was not a qualified individual under the ADA” because he lacked the requisite DOT certification required by federal law and failed to exhaust the administrative procedures under 49 C.F.R. § 391.47 to challenge that determination. Id. at 812 (citing Harris v. P.A.M. Transp., Inc., 339 F.3d 635 (8th Cir. 2003)). See also Bay v. Cassens Transp. Co., 212 F.3d 969 (7th Cir. 2000); King v. Mrs. Grissom’s Salads, Inc., No. 98-5258, 1999 WL 552512 (6th Cir. 1999)).

 

Here Plaintiff contends he was a qualified person under the ADA based on the medical certification of “his personal doctor,” but, as noted, his personal doctor’s certification was in conflict with the medical opinion of the Defendant’s doctor who determined Plaintiff was not medically qualified. Like the plaintiff in Williams, Plaintiff did not exhaust the administrative procedures available to him under 49 C.F.R § 391.47 to resolve the conflicting medical opinions, and, therefore, it has not been established whether Plaintiff was a “qualified individual” under the ADA.

 

On this record the Court concludes Plaintiff has not carried his burden to show his failure to exhaust the available administrative remedies was excused or would have been futile.

 

 

1. The dispute at issue is within the primary jurisdiction of the DOT.

As noted, the Court has concluded an administrative remedy-is available, Plaintiff was required to avail himself of that administrative process, and Plaintiff has not exhausted that remedy.

 

*7 The Ninth Circuit directed the Court on remand to consider whether to exercise its discretion to excuse exhaustion, which would allow Plaintiff to proceed in this Court or to invoke the doctrine of primary jurisdiction and refer the matter to the DOT for further administrative proceedings.

 

The Court notes the doctrine of primary jurisdiction is not equivalent to the requirement of exhaustion of administrative remedies. Brown v. MCI WorldCom Network Servs., Inc., 277 F.3d 1166, 1173 (9th Cir. 2002). When “relief is available from an administrative agency, the plaintiff is ordinarily required to pursue that avenue or redress before proceeding to the courts; and until that recourse is exhausted, suit is premature and must be dismissed.” Syntek Semiconductor v. Microchip Tech., Inc., 307 F.3d 775, 780, 781 (9th Cir. 2002) (citing Reiter v. Cooper, 507 U.S. 258, 269 (1993)). In contrast, the doctrine of primary jurisdiction “is a prudential doctrine under which courts may, under appropriate circumstances, determine that the initial decision making responsibility should be performed by the relevant agency rather than the courts … when protection of the integrity of a regulatory scheme dictates preliminary resort to the agency which administers the scheme.” Syntek, 307 F.3d at 780-81. When considering this issue, courts have employed such factors as (1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration. Id. at 781.

 

As the court noted in Harris, it is clear that congressional intent vests the issue of driver fitness in the Secretary of Transportation and squarely within the regulatory scheme and substantive expertise of DOT. Harris, 339 F.3d at 63. Thus, the Court concludes the administrative process set out in 49 C.F.R. § 391.47 was established in part to resolve medical disputes regarding driver qualifications.

 

On this record the Court concludes resolution of this medical issue lies within the jurisdiction of the administrative body that exercises regulatory authority over a national activity that requires uniformity in administration. The Court, therefore, concludes application of the doctrine of primary jurisdiction is appropriate and, accordingly, refers this matter to the DOT.

 

Finally, although Plaintiff asserts the statute of limitations would prevent him from refiling his claim in this Court at the end of the administrative process, the Supreme Court noted in Reiter that “referral of the issue to the administrative agency does not deprive the court of jurisdiction; it has discretion either to retain jurisdiction or, if the parties would not be unfairly disadvantaged, to dismiss the case without prejudice.” 507 U.S. at 268-69. Thus, because the statute of limitations may preclude Plaintiff from refiling his claim at the conclusion of the administrative process, this Court retains jurisdiction over this matter and stays this case pending the outcome of the administrative process available to the parties.

 

 

CONCLUSION

For these reasons, the Court GRANTS Defendant’s Motion (#28) for Summary Judgment and REFERS2 the matter to the Department of Transportation for further administrative proceedings. The Court retains jurisdiction over this case pending the available administrative process and STAYS this action pending the outcome of that process.

 

*8 The Court DIRECTS the parties to file a joint status report beginning 120 days from the date of this Opinion and Order and every 120 days thereafter regarding the status of the administrative process and to advise the Court immediately when the administrative process is complete.

 

IT IS SO ORDERED.

 

DATED this 17th day of October, 2016.

Footnotes

1

The Joint Statement of Agreed Facts (#26) states in FN 2: “Although Plaintiff has alleged he was terminated, Plaintiff’s end of employment was more akin to a withdrawal of the conditional job offer. Plaintiff never drove for Gordon Trucking. Regardless, it is undisputed that Plaintiff was not permitted to drive for Gordon Trucking by virtue of being medically disqualified under DOT regulations.” For purposes of this Motion, therefore, the Court will refer to Plaintiff as being “terminated.”

2

There is no formal transfer mechanism between federal courts and the agency. The parties, therefore, are responsible for initiating the appropriate proceedings before the agency pursuant to this Opinion and Order.